Flexible businesses can, by their very nature, roll with the punches and evolve as their customers do.
But the recent pace of change at WeWork has shown that even the most flexible of businesses can be at risk.
Those of us in the property industry cannot fail to have noticed how WeWork has become central London’s largest office tenant in less than 10 years. It reportedly occupies 808 offices in 123 cities worldwide, while also losing $1.9bn on turnover of $1.8bn in the 2018 financial year.
But this growth has been brought into question as of late. Within the last month, WeWork pulled its plans to proceed with an initial public offering, from which it hoped to raise $3.5bn, its founder and chief executive Adam Neumann stood down, and it also had its credit rating downgraded two levels by Fitch from B to triple C.
Last week, it was reported that WeWork received an early payment of $1.5bn from SoftBank, with the co-working company weeks away from running out of money. WeWork was valued as high as $47bn in January this year, but is now thought to be worth closer to $15bn.
But while WeWork is clearly struggling, that’s not to say that the trend towards flexible office accommodation is going to reverse anytime soon.
It is sometimes hard to believe that in the 1980s and early 90s, 25-year leases were the norm, whereas today, it is unusual to find an office tenant signing up for more than a 10-year commitment, and frequently less.
Fast forward to today, and we have a new model for flexible working.
Flexible leases suit the dynamic nature of the businesses undertaken by many office occupiers in the twenty-first century, and even large global businesses such as HSBC use flexible WeWork accommodation. This model has real value for both young and established businesses.
Part of the problem is that WeWork appears to have been valued more like a tech than a property business, even though its business model is to arbitrage the rent it pays for office accommodation. But there is scope for other similar-style businesses to really use technology to their advantage, utilising the information on tenants to optimise the use of accommodation and the services provided.
The growing trend of large businesses using such models has spawned the growth of a number of flexible office providers, not least Regus. In London, there are several up-and-coming competitors, including FORA, backed by property specialists Delancey.
The new players are embracing the trend for coworking where traditional serviced office operators haven’t, allowing individuals to rent a desk and benefit from the social interaction of working alongside others. It is an evolution of the serviced office model.
So while WeWork’s issues have shaken up the market, coworking offices are here to stay. There is real value in this sector, but it can also be easy to get wrong. Done well, flexible businesses offer an opportunity for the few who can get it right. It’s a question of who will dominate market share in the coming months.